Housing prices continuing to increase at a startling rate

With housing prices continuing to increase at a startling rate many people are concerned with where this market is going to take us.  We all know that this is the market for sellers to maximize their profit but what does it mean for the buyers in the long run?  Are we going to end up in a similar situation as the 2008 housing market crash?  To help answer some of these questions and concerns I have put together some outlook opinions from leading industry experts.

 

Danielle Hale, realtor.com chief economist: We expect sales to grow 7 percent and prices to rise another 5.7 percent on top of 2020’s already high levels. While we expect mortgage rates to tick up gradually, sales and price growth will be propelled by still strong demand, a recovering economy, and still low mortgage rates. High buyer demand and still-lagging supply will keep prices growing, but at a slower pace than 2020 as buyers contend with mortgage rate and price increases that create affordability challenges. 

While younger Millennial and Gen-Z buyers are expected to play a growing role in the housing market, fast-rising prices will create a bigger barrier to entry for the many first-time buyers in these generations who don’t have existing home equity to tap for down payment savings. Although supply is expected to lag, we do expect the declines to slow and potentially stop by the end of the year as sellers grow more comfortable with the market environment and new construction picks up. Single-family housing starts are expected to grow another 9 percent in 2021. On the whole, the market will remain seller-friendly, but buyers will still have relatively low mortgage rates and an eventually improving selection of homes for sale.

 

Robert Dietz, senior vice president and chief economist, National Association of Home Builders: With home builder confidence near record highs, we expect continued gains for single-family construction, albeit at a lower growth rate than in 2019. Some slowing of new home sales growth will occur due to the fact that a growing share of sales has come from homes that have not started construction. Nonetheless, buyer traffic will remain strong given favorable demographics, a shifting geography of housing demand to lower-density markets and historically low interest rates.

But supply-side headwinds will persist. Residential construction continues to face limiting factors, including higher costs and longer delivery times for building materials, an ongoing labor skills shortage, and concerns over regulatory cost burdens. For apartment construction, we will see some weakness for multifamily rental development particularly in high-density markets, while remodeling demand should remain strong and expand further.

Selma Hepp, CoreLogic deputy chief economist: While 2020 did not surprise with its fair share of surprises, 2021 could still have more surprises in store for us. Still, expectations for the housing market remain generally positive. First, interest rates, which have motivated many buyers in 2020, are expected to remain low and will help ameliorate some of the affordability concerns resulting from rapid home price appreciation seen in 2020. In other words, low mortgage rates continue to provide greater purchasing power, especially for first-time home buyers.

Second, first-time home buyers will remain a strong force in the market as the largest cohorts of Millennials are turning 30 – critical household formation years. But also, the oldest Millennials are increasingly contributing to the trade-up market. As a result, 2021 home sales activity is expected to remain strong and outpace 2020 levels. Third, inventory levels are likely to see some improvement, partially from sellers who have been on the sidelines, partially from distressed homeowners, and partially from more new construction. But the housing market will continue to struggle with an imbalance between supply and demand, which will lead to sustained competition among buyers and further home price appreciation, albeit at a slower pace than seen in 2020.

Daryl Fairweather, chief economist of Redfin: Although the U.S. may be able to vaccinate most of its citizens by the end of 2021, many countries will struggle to distribute vaccines. Thus, the global economic recovery could take much longer, which would make U.S. mortgage-backed securities attractive to international investors, keeping mortgage rates low. Even as the pandemic hopefully nears its end, Americans will continue to buy homes that fit their new lifestyle. As a result, 2021 will see more home sales than any year since 2006. Annual sales growth will increase from 5% in 2020 to over 10% in 2021.

Rising prices for existing homes will increasingly drive more buyers to consider a new one. And because home buyers are now more eager to buy in suburban and rural areas where land is cheaper than in the cities, there will be more areas where homes can be built profitably. By the end of the year, the homeownership rate will rise above 69% for the first time since 2005.

Antoine Thompson, executive director of the National Association of Real Estate Brokers: As the nation continues to grapple with Covid-19, the 2021 housing market will continue to have low interest rates. Congress will likely approve funding and legislation by the Biden-Harris administration for the creation of a new closing cost and down-payment assistance program and/or tax credit to help increase the rate of Black and minority homeownership. There will be a push by housing and civil rights advocates to have the Biden-Harris administration fix the fair housing and community reinvestment policies rolled back by the Trump-Pence administration. 

 

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